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Let's Knock the Dust off the Biggest Bull on CAPS

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October 06, 2011 – Comments (46)

*R.I.P. Steve Jobs

Well, well, well, guess who's back?  I've been trolling your blogs for three months, and now it's time to knock the dust off this trick and pound those keys again. =P  Yeah, that's dirty if you want it to be, but I am full defiance mode.  I'm the Biggest Bull on CAPS and I'm back to once again put my rep on the line, this time going up against one of my all time F-A-V's, StatsGeek.  I love SG like Ronnie loves Sammi, except I've never thrown his belongings off the balcony in a half-liquor half-steroid induced rage. But we'll get to back to this.  First, the minutes from our last meeting, please.

Louden Swain has an appointment with Shute

If you get that reference, that means you're really old.  I blogged a few months ago about some shadowy opportunity I was pursuing.  We've taken the first steps.  (Did you see that? I just referred to myself in the plural.)  I quit my job in Qatar and moved to California, land of beautiful weather, women almost as hot as my fiance (hi baby!), and imploding government budgets.  I love California almost as much as Tupac did.  Maybe I'll throw some bones in the CPT in his honor.  Today, I'm in Sacramento, gathering my meager possessions (I've always embraced minimalism as a practical measure.  When you travel as much as I do, it pays to own very little.)  Next week I will be in Simi Valley finding a place to live.  It's enough excitement to turn my nipples into stalagmite, so the last thing I needed this week was warning that the stock market is going down like Deena on Paulie D.

Let Me Shove My Green Shoots Where the Sun Don't Shine

The mainstream Keynesian has finally turned bearish, whether it's the Conscience of a Phoney over on the Toilet Paper of Record, that crazy Bruce Bartlett http://www.economicpolicyjournal.com/2011/10/bruce-bartlett-goes-bonkers-on-cnbc.html, or the latest White House shill (ya know, when they're not justifying their boss's latest killing spree.) But once again, the mainstream has it completely wrong. I'm not going to be contrarian just for contrarian's sake, but let me assure you that if you bet against mainstream economists, you are almost guaranteed to be closer to the truth. There are signs of recovery/turnaround, but before I even cover those, I have to qualify what a recovery actually is.

If Recovery Were Easy, There Would Be No Alcoholics

Allow me to state this as unequivocally as I can. In an unbacked paper money substitute economy, there is no such thing as a sustainable recovery. It's not theoretically or practically possible. In order for sustainable growth to occur, investment in long term projects must match society's abstainment from consumption. In other words, you cannot build a house to sell three years from now if everyone wants their house right now! Three years from now, when it is time to sell the completed home, no one will be able to buy it. Even worse, along the way, the resources you need to build the home will have been either consumed by others or bid up in price by others. Then you end up bankrupt. This how we bust.

If you allow interest rates to work, they coordinate consumption with investment. This is especially important because long term projects are interest rate sensitive, since they require a great deal of capital and therefore a great deal of borrowing, usually. When people consume a higher than normal amount of resources (i.e. spend all their money on tanning products and designer tee shirts), interest rates rise due to a lack of funds. When people consume less, interest rates lower. In other words, in a free market, interest rates coordinate investments over time. When people want more in the present, investment reflects that. And when they want less in the present, low interest rates allow for greater investment in the future.

Now think about our society. Interest rates are controlled by technocrats. Technocracy is an anti-capitalist fallacy that assumes that market decisions can be replaced by nerds with t-squares and pocket calculators. Hey, I like nerds. I'm kind of a nerd, after all. But no matter how much love Ben Bernanke, Alan Greenspan, and their ilk profess for the market, they are not pro-capitalism. They are technocrats, and technocracy is a rival to the free market. The two are not compatible.

Recall that your desire to consume or refrain from consumption originates from your subjective value scale. You rank economic actions based upon the satisfaction you believe they will bring you. You very well could be wrong about those perceived consequences, but what is important is that no one else can know in advance what your value scale looks like. They can give you a survey questionnaire, but that has limited value, since you are likely to change your mind at any time between then and the final purchase. Only through your action is your preference revealed.

What this means is that technocrats are making decisions based upon information they cannot possess! Namely, your subjective value scales and those of every market actor. The technocrat believes he can read minds, and set interest rates according to your preference for present consumption. Obviously, he will always be wrong.

This is why Bernanke defenders crack me up. The only way you can defend the Federal Reserve is if you don't even know where value comes from. All value extends from the human mind. All value is based on the ends that can be achieved from the combination of labor, land, and intelligence. All ends are means to satisfy wants. All wants are ranked subjectively by consumers. Where does the technocrat fit in here? He doesn't. He inserts himself into the picture to replace subjective value scales with his subjective value scale. He wants people to consume now, so he lowers rates.

Boom Goes the Dynamite

In a funny money economy, the only solution for a bust is another boom. That's where we stand today, at the beginning of another funny money engineered boom. I say funny money, but it would most accurately be called money substitutes. Federal Reserve notes – the dollars in your wallet – are money substitutes. They are not money. I know this is upsetting. You worked your whole life for the meager notes you dropped off at the bank. It is infuriating to find out it is not actually money. But that doesn't mean your FRN's have no value. So let's walk through this as well.

There are some economic schools of thought that believe the past doesn't matter, that history is irrelevant in monetary theory. I am very wary of these people. I think it is extremely valuable to understand how we ended up slaves for paper. I like the coat check example as the best way to explain how we entered a money-less, money-substitute-only society.

Let's say that you walk into your favorite night club. You check your coat. You get a claim check. We'll call it a Diddy.  So 1 Diddy = 1 Coat. Now let's say that you could trade the Diddy for a bottle of wine, giving the wine owner the claim on your coat. The coat is the underlying final good. Now imagine that everyone is using Diddys. Roughly speaking, everyone's coat was of equal value. Diddy's are circulating around the club and no one is actually redeeming them for coats. All prices in the club are now calculated in Diddy's. 0.5 Diddy's for a lap dance. 3 Diddy's for the VIP room. (We all have nice coats.)

Now something strange happens however. Over the weekend, prices double. Now it costs 6 Diddy's to go in the VIP room. Wyclef is furious and he writes a song about taking his favorite hooker to Mexico. It doesn't take to long for people to realize that their Diddy's are losing value, so they run to the coat room to turn them in for coats. Only there's a problem.

The people who run the coat room have been printing more Diddy's than there are corresponding coats. They cannot satisfy all the claims on the coats. So you throw a big hissy fit but there's nothing you can do, because the bouncers come down and tell you that all payments of coats have been suspended and if you don't take a hike, they'll start cracking skulls. And by the way, you owe them money for the privilege of getting your skull cracked.

That's how it goes, folks.

So pretty soon, we're stuck with these stupid Diddy's and no coats. Thankfully, since we've been using the Diddy's to buy things, there are already prices in them. So we all make do as best we can. Over time, the value of the Diddy's will continue to erode. There is nothing underlying them to prop up the value. It is an inevitability that they will one day go to zero. It is a slow, torturous process caused by government intervention. They took your money away from you (actually they did it to your grandparents in 1933), and left you with an increasingly worthless claim check. 1 Dollar used be a claim for 1/20th of an ounce of gold. It wasn't a price fixing scheme. It was a claim on private property. Today, that dollar can only claim 1/1630th of an ounce of gold. And it is only going to get worse because there is no underlying value to a fractional reserve note. It has been separated/severed from the underlying property. I put that in bold becaue the sooner you understand that, the sooner you will grasp all of the big picture issues that I have discussed over the last three years.

I know this is getting very long, but bear with me.

So we have technocrats planning interest rates and funny money that is backed only by the political establishment's willingness to use jackbooted thugs to crack your skull (thugs who take payment in the same funny money, which is funny in itself). So how does such a (nightmare) economy turn around? The only way is by re-inflating the bubble and creating another boom.

And that's what I see. And that's what brings us full circle back to StatsGeek's recent short but sweet post “Who's jumping in front of this freight train?"

I am.

Any dips we get from here on out are going to be the buying opportunities of a lifetime. I wouldn't recommend ever following my advice (though I think you can do worse with others), and I repeat that I hate being on the other side of StatsGeek as well as a tsunami of technical indicators that are bearish. I think they're all wrong.

So what do I see?

Declining personal bankruptcies

Rising automobile sales

Accelerating ISM factory index

Improving hotel occupancy rates

Higher demand for office rentals

More price inflation

(Btw, I have a bet with ETFsRule on this one. I'm feeling pretty good about it. Basically if price inflation is higher next summer than it was this summer, I win. Whaddya think?)

The Producer Price Index rose 7.2% over the last 12 months.

Even Fed economists now recognize rising price inflation

Examine this chart closely (from the Fed). Notice that the distribution of price changes is shifting from small changes (0-2%) to larger changes (2-3% and more than 10%).

Most importantly, Fed money printing has not stopped or slowed. Investors think it has, but in reality it has not. It may have even increased, and the Fed spigot is the #1 indicator of a boom or a crash.

So those are my reasons to believe that, rather than entering a stock market crash and another recession, I believe the recession is finally ending and another funny money boom is about to begin. Of course, I don't see this as a good thing, since this boom will be totally out of step with society's consumption patterns and will of course crash hard, even harder than this last one.

If I were betting man (which I am), I'd bet against a stock market crash. But if I were a betting man that wasn't me, I'd bet on StatsGeek.

Comments welcome. I will do my best to be civil, but I reserve the right to say whatever I want to whomever I want whenever I want.

David in Qatar... No More

46 Comments – Post Your Own

#1) On October 06, 2011 at 11:31 AM, chk999 (99.97) wrote:

Welcome back. 

Be careful about California taxes. The state is bankrupt, terrified and floundering. They will try to find hosts to leach off of and income in the state is a prime target. 

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#2) On October 06, 2011 at 11:42 AM, whereaminow (< 20) wrote:

Welcome back.

Thanks, chk999. It's good to be back.

Be careful about California taxes. 

I hear ya. They are in serious trouble out here.  But it's always darkest before the dawn.

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#3) On October 06, 2011 at 12:35 PM, Jbay76 (< 20) wrote:

David,

Congrats on the move, though being from SoCal, I think you still have some moving to do to ge to the finish line.

Great post and interesting insight!  You're one of the few who can write long diatribes and I'll still read it, so keep 'em coming!


Cheers

J

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#4) On October 06, 2011 at 12:36 PM, Jbay76 (< 20) wrote:

On a sidenote, you do realize you went from DIQ to DIC, in abreviated terms ofcourse.

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#5) On October 06, 2011 at 12:58 PM, fiduke27 (< 20) wrote:

I'm still on the bear train. Ignoring Europe I agree with you, but I feel we still have one final, nasty pop to come, followed by a swift rebound.

 

On the other hand I don't think starting to accumulate now is a bad idea. Whenever it hits bottom and takes off again, the market is bound to pass today's value. 

 So I say, as long as you accumulate without margin, in 5 years from now you'll have substantial total returns.

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#6) On October 06, 2011 at 1:02 PM, whereaminow (< 20) wrote:

Jbay,

Thanks!

you do realize you went from DIQ to DIC,

LOL, I think I'll just drop the tag line and go with David :)

fiduke27,

Thanks for the input.  I certainly cannot dispute the dangers of Europe (and China's possible upcoming crash).  I would hope the market has priced in a Euro breakup if that's possible, since it is so predictable at this point, but that's probably wishful thinking.

David

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#7) On October 06, 2011 at 1:03 PM, rfaramir (29.31) wrote:

You've improved in your short absence! You were perfect until this point, and here you weren't wrong, just half-right:


"He [the central banker] inserts himself into the picture to replace subjective value scales with his subjective value scale. He wants people to consume now, so he lowers rates."


Artificially lowering the interest rate does *two* things: 1) increases consumption (savings is discouraged by low bank rates on deposits) and 2) increases investment (low interest rates tempt entrepreneurs to borrow). You got the first half, but the second comes, too. And that's the problem. Both consumers and producers are 'stimulated' to action, but they conflict, as there is only so much real stuff to go around, but the increased dollar supply (the only means to reduce interest rates) enables both consumers and producers to bid higher for the scarce goods and services available. Voila, price inflation.

Then here you conflate money substitutes with fiduciary media:


"I say funny money, but it would most accurately be called money substitutes"


Not quite. Even gold-backed printed paper is a money substitute. The real money is the gold on deposit. The substitute is the paper receipt for the deposited money. When you give or accept the paper in an exchange, you are using the substitute as if it were the money. You are fine so long as there is 100% reserves and no fraud or bank robbery. Your paper money is as "good as gold." Of course, as soon as you hear someone claiming that, I'd recommend checking their veracity: they are probably trying to convince you of an untruth. But so long as there is no fraud or force involved, paper money is an improvement--that the free market has blessed us with--over hauling around hunks of specie.


Funny money comes about when more substitutes are given out by the bank than there are deposits in their vault. They try to get away with fraud, in other words. This fraud is now backed by laws that enable it and a central banking cartel (the Federal Reserve) which protects it from bank runs. Bank runs are the free market solution to bank fraud. All laws protecting banks from them must be repealed for a free market in money to be reestablished. This "funny money" Ludwig von Mises called "fiduciary media". It looks (and spends) identical to legitimate money substitutes (the ones backed by the deposits of specie), but are fraudulent. The fraud is hidden by there being no way to distinguish which ones are backed and which ones are not. All bills (even though serialized) are identical to each other. You cannot know which are backed and which are not until you try to trade them back for 'your' gold: the first X% in line are successful, the last 100-X% are not.


Your Diddy example is exactly right; I'd just improve the terminology. When everyone could exchange their Diddy for their coat, it was 100% reserve banking, no fraud, and the Diddys were honest money substitutes. When the joint printed more Diddys than they had coats, that was the fraud called fractional reserve banking, and the extra Diddys were fiduciary media (X% honest money substitutes, 100-X% fraudulent money substitutes). When the bank run was stopped by force, that was going off the "coat standard" and the ultimate in government ripoff of your private property.


Oh, and welcome back! 

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#8) On October 06, 2011 at 1:10 PM, whereaminow (< 20) wrote:

LOL, leave it to rfaramir to tear me a new one :)

I knew you were going to get me on this line: "He wants people to consume now, so he lowers rates."  I had already submitted the post before I realized I needed to clarify it.

Thanks for the addition on the terminology of fiduciary vs. substitute.  I do get confused on that.

Oh, and welcome back!

Thanks! It's good to be back!

David

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#9) On October 06, 2011 at 1:58 PM, PeteysTired (< 20) wrote:

If we had a currency backed by some type of property how do you think it would stand against a world of fiat? 

I hear on the news how the Swiss are terrified of a having a strong ? (dollar), because it hurts their exports.  It seems like everyone wants to devalue their currency.

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#10) On October 06, 2011 at 2:09 PM, rfaramir (29.31) wrote:

You inspire me to amplify and clarify!

Maybe that's why I don't blog: I'm a better editor than writer? I need someone to react to, to bounce off of.

And, yeah, "fiduciary media" confused me for quite some time. Mises doesn't come right out and call it fraud (IIRC), but that's what he means. The "media" part is easy: items which are used as a medium of exchange. "Fiduciary" is just CPA techno-jargon (to me) having to deal with economics, responsibility, and money in some way. Dictionary helpful: "involving trust, esp. with regard to the relationship between a trustee and a beneficiary" and less helpful: "(of a paper currency) depending for its value on securities (as opposed to gold) or the reputation of the issuer." They're saying it's like a private fiat money, bank-issued instead of government-issued, as if it mattered who commits the fraud! I think the dictionary is saying even the honest money substitutes are "fiduciary media" because you have to trust the coat-checkers to give you your coat back and trust they won't issue more Diddys than they have coats.

But I think the proper use of it is when the trust fails, especially before you find out: they've over-issued but you haven't tried redeeming them yet. You're using stealthily-inflated currency but don't know it. They've duped you. Your purchasing power has already been stolen, but you don't notice until you see prices rise.

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#11) On October 06, 2011 at 2:09 PM, Teacherman1 (28.03) wrote:

Good post, and I agree with most of it.

Let's hope your "Bullishness" translates to at least a medium term move in the markets in the same direction before there is a significant correction.

Are you still going to be "Where am I now", or does your move to California indicate a more permanent "resting place"?

Good luck to all and let's hope this sudden "smiley face" of a market isn't just a short term set up by the "evil powers" behind the curtain.

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#12) On October 06, 2011 at 2:24 PM, BillyTG (29.24) wrote:

David in CA, I wouldn't exactly classify Sacramento as having beautiful women or weather (unless you like the smell). You need to move along to the Redwoods or SoCal...

So basically you're betting on a longterm market surge? Is your belief that huge money printing and intervention by the Fed will cause such inflation that everything, including stocks, goes up in price?  I heard Peter Schiff say something similar, that as the dollar's value goes down, stocks and "stuff" will go up. It's a simple enough explanation, just wondering if that's your thinking here.  Some other article I read suggested that the Fed has market levels it is watching, danger zones if you will, that it will absolutely not allow to be breached without massive intervention, and it is surmised that they did just that this week when the market approached that zone.

What kind of real life stuff are you buying?  What would be your guess as to the dollar amount (or relative size to QE2: as big as, 5 times bigger, etc) of a QE3?

As I write this, I'm deep in the red on some market puts, after being way into the green just two days ago. That gap up killed my paper profits, and my only chance of recovery on that small trade seems to be if we have some kind of flash crash.

A quote from the yahoo SLW boards today that I liked: " This message may be in the idiot zone, but the color of money is green, until it turns to gold."

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#13) On October 06, 2011 at 2:37 PM, catoismymotor (< 20) wrote:

Good read! This one's for you: A little P. Diddy if you will.

Welcome back to the States. What made you come back home? Was it insider info that AAPL was about to have an executive position open by mid week and you felt compelled to hand deliver a resume?

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#14) On October 06, 2011 at 2:59 PM, whereaminow (< 20) wrote:

PeteysTired, It seems like everyone wants to devalue their currency.

It helps business owners. It hurts consumers. But the point of business is to serve consumers, so why do people advocate policies that hurt consumers?  I don't get it. It's classic mercantilism, and although Adam Smith had some confusion with his theory of value, his attacks on mercantilism are quite valid.  I don't get where mercantilists get their intellectual ammunition.

David

 

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#15) On October 06, 2011 at 3:05 PM, whereaminow (< 20) wrote:

rfaramir,

Regarding your comment #10, I think this is why some classicals argued that free banking is ideal because it would result in the least amount of banking possible, since people being perpetually duped, would eventually stop putting money in banks.  Now, I realize that on this blog and in this crowd, the idea of limiting banking is abhorrent.  But it certainly is a more complex topic than can be covered in a comment.

Let me say that my position is that loan banking and demand deposit banking have valuable functions in a market economy, but the laws regarding the two have been conflated, giving the banks a priviliged position in terms of liability that does not exist anywhere else in the world.  Hence, whenever a problem arises, and they exercise that privilege, they hurt regular people.  And those regular people get angry.  And sometimes they turn to socialism and sometimes they turn to fascism, but rarely does this scenario ever result in more liberty.  I think people need to see this.

David 

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#16) On October 06, 2011 at 3:10 PM, whereaminow (< 20) wrote:

BillyTG,

In RL, I am working on buying a house, so while I'm not selling any positions, I cannot add to them right now.  FWIW, I think Silicon Valley will dramatically outperform the next 12-24 months.

In terms of monetary policy, I think investors got a little duped last week.  The Operation Twist announcement was confusing.  The Bernank made it seem that he was discontinuing any inflationary policies, but the evidence is that he is not.  I don't think there will be announcement of further QE, since it is such horribly bad publicity, and The Bernank is a bit insecure in the public eye.  I think it will continue backdoor, and at a rapid pace.  Ben is no fool.  He's a Princeton Liberal.  He wants Obama to win.  He needs a recover as quick as possible. 

David

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#17) On October 06, 2011 at 3:14 PM, whereaminow (< 20) wrote:

Teacherman1,

Thanks!  I've always had my eye on SoCal for retirement ever since I was stationed there in the 90s.  I think this will be permanent.

catoismymotor,

Thanks as well!  I got a great job offer doing something very interesting on the e-commerce side of the house, so I jumped.  Not with AAPL though, lol.

David

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#18) On October 06, 2011 at 4:29 PM, FleaBagger (28.07) wrote:

You do realize that this:

Declining personal bankruptcies

Rising automobile sales

Accelerating ISM factory index

Improving hotel occupancy rates

Higher demand for office rentals

is all monkeysh*t, right? And as for price inflation, I've pointed out a zillion times that it doesn't mean higher stock prices (e.g. 1968-81). I agree that stocks declining presents a buying opportunity, but watch for a big buying opportunity in stocks this fall/winter, bigger than we just saw in gold and its redheaded stepsister, silver.

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#19) On October 06, 2011 at 4:52 PM, whereaminow (< 20) wrote:

LOL, wow Flea.

is all monkeysh*t, right?

In isolation, sure.  But I'm 43.289% certain that we are headed for a serious recovery over the next 12 months in many sectors, enough to push stocks much higher.  Disagree if you wish.

I've pointed out a zillion times that it doesn't mean higher stock prices (e.g. 1968-81).

True, true.  But Frank Shostak has shown rather conclusively that bursts of money printing push stocks higher predictably, while sharp decreases in new money issues cause those bubbles to burst more quickly.   My feeling is that investors believe the Bernank has started a sharp decrease in issue, when in reality he has not.  

I'm not expecting a burst upward, but the beginning of another unsustainable boom.  The stock market will not go up +3,000 Dow this week.  That's not what I mean.  I mean -3,000 Dow is highly unlikely at any point in the next three or four years because economic activity is picking up.

Am I wrong?  Oh, perhaps.  I've been wrong once or twice in my life ;)

David

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#20) On October 06, 2011 at 5:41 PM, Valyooo (99.40) wrote:

You still like gold? The story is still good in regards to inflation and currency devaluation but maybe its too high on recessionary fears?

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#21) On October 06, 2011 at 6:09 PM, cbshort (92.15) wrote:

Let's call your blog WAIN's world.  ...I agree with you totally. But to play devils advocate.  You have heard of the occasional phenomonen known as deflation?

 That's where the nightclub prints up a few extra diddy's for their friends.  Sure, the dancer's make out good for a while.  However, there are fears of global warming.  The forecast calls for 100 degree Farenheit weather for the next 30 years.  Plus everyone is having so much fun in the VIP room, no one even thinks about leaving.  Demand for coats disappears.  Everyone spends their money on champagne.  They start to worry if they'll have enough for a cab ride home.  Save their diddies.  You get the picture.

I'm not saying I believe this.  Just one possible scenario that many are betting on these days.

Thanks for the post.

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#22) On October 06, 2011 at 6:31 PM, whereaminow (< 20) wrote:

Hi Val,

I hope the new job is treating you well.

You still like gold? 

Of course, and for many reasons, among which is the continued government largesse across the planet.  Doesn't seem to be any indication that these modern day aristocrats can slow down their spending.  Even their austerity is really just making sure the bankers get paid, while they take no cut at all (only the little guy gets the cut.)  So I see no reason that gold will go lower.  Or silver.  It's a rocky ride though.

So my overall investment strategy remains the same.  To simplify: Pay off your debt.  Build a rainy day fund that's liquid.  Build a secondary rainy day fund in metals.  Then add conservative investments (preferably with dividends).  Then add riskier investments. Then allow yourself some debt in proportion to your net worth. If you follow that prescription, it's really hard to go broke.

cbshort,

Deflation in a modern paper money economy is something I will have to see to believe.  Although many think it is possible, they usually change the definition in order to make it work.  Deflation is a persistent drop in the general price level.  Even after a bubble bursts, we usually only get one quarter of falling prices, after which they shoot right up again, because the money printing never stops.  No modern industrial economy on unbacked paper has had persistent price drops since World War II.  Not even Japan. Their deflation is a myth.

So that's a dumb bet. Period. Unless you're getting like 10,000 to 1 odds.

David

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#23) On October 06, 2011 at 7:06 PM, awallejr (76.71) wrote:

Well David, you have another thing going in your favor, I as a professed permabear had turned bearish.

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#24) On October 06, 2011 at 7:06 PM, awallejr (76.71) wrote:

dern it, did it again, meant professed permabull.

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#25) On October 06, 2011 at 7:11 PM, Louebsch (< 20) wrote:

Great blog David.

I just have one question and maybe i missed it in your blog but what is the next boom going to be? In order for there to be a boom, the general population needs to have discrentionary funds to create it. People have been sucked dry since 2008 (well really since the Fed was created but i'm just talking in short terms). Correct me if i'm wrong but i think we had the dot com boom and bust in the 90's, and the housing boom and bust in the 00's, what is going to be the next boom and bust. I'm sure there were other bubbles prior to the 90's but i'm not that old so i don't care. jk.

But the one problem is that with all of those booms people in general still had a little money in the bank or in their homes. Now no one owns their home or their homes have been devalued to being underwater. These were just items that were used as "coats" for the banks to loan more money. I don't think the banks will loan money to people with no diddy's and no coats!

On top of that this presidency has been especially horrific for the up and coming entrepeneur. There is so much red tape that it is almost impossible to start something new. It was a sad day today with the loss of Steve Jobs for more than one reason. Not only will Apple die a slow death, but one of the greatest inventors of our time just left the building. What was the last invention that you know of that boomed the economy like the ipod or iphone? The man created new industries not just new products. We are in serious trouble my friend. I do believe the next boom is coming because the Federal Reserve is to corrupt for one not to happen, but when the chips fall the next time, there might be bread lines in every city

Lou

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#26) On October 06, 2011 at 7:36 PM, whereaminow (< 20) wrote:

awallejr,

LOL, I won't crow over that.  I am much more confident in my political theory than my economic "forecasting".  You're as likely to be correct as I am, and perhaps more so.

Louebsch,

what is the next boom going to be? 

Million dollar question, there.  I think Silicon Valley will recover first.  I think the signs are that it has already started.  (San Fran is bursting at the seems, for example) There are lots of genuises out there, and I understand your point, but the tech sector is one sector that is least regulated.  It is no surprise that this is where the most innovations come from.  Steve Jobs, as great as he was, is not the only wellspring of ideas.  

I also understand that unemployment stands in the way.  Ideally, a not-so-freaking-retarded America would get it that minimum wage laws and extended unemployment benefits are the primary reasons that unemployment hovers around 10%.  You remove those two interventions and it drops to less than 5% in a new york minute. 

But that's not going to happen, and Uncle Sam's Plantation keeps growing in cities across America as poor people become wards of the State, slaves to their looting masters.  So pathetic.

Well, I don't know what to tell ya. I'm going to stay positive.  There are opportunities out there, and I think a recovery (albeit an unsustainable one) is on the way.  I have to stress that part. I don't want anyone to think that I think this is some magical turnaround that is going to work out for all involved.  It ain't like that.

David

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#27) On October 06, 2011 at 8:27 PM, Frankydontfailme (27.71) wrote:

The US Markets have definitely hit a short term bottom. Way oversold. Way too many redemptions. Everyone's in cash and bonds, no ones in equities. Way too much pessimism, and waaaaay too much net short positions. No one left to sell that would. A bad jobs report tomorrow could send us to retest lows but not break them.

That being said, this will be a bear market rally. No new highs.

Europe "getting its act together" by kicking the can down the road and printing more money. Blah Blah Blah.

Problem is, the issues with the economy are fundamental and can only be fixed with hyperdeflation via defaults or more likely, quite a bit of inflation. Even then we only fix the debts and not the reality of malinvestments.

The ISM data you point is exactly why it will be a bear market rally. Manufacturing SHOULD be slowing down. Companies and households SHOULD be deleveraging. But they aint. And its the fed's fault.

So we rally, and then we crash. I guess we are saying the same thing but it sounds like you see the crash in the distant future, I see it next year. 

Great post though. 

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#28) On October 06, 2011 at 8:34 PM, rofgile (99.43) wrote:

I've been downright thinking of selling everything this last month, since I made the mistake of buying back into the markets after the debt limit debate was resolved (after this started the big market correction or new bear).  This is mostly emotional, worry about *will I lose everything?* feelings.

My head is still quite bullish especially of late.  When my head and heart disagree on the markets, thats usually a good sign for me to start buying in small increments.  Opposite should be a good time to sell, but I am not as good at that. 

---

However, I also am recognizing that things perhaps are not as bad as they seem.  Now would be a good time to buy in / timing-wise / as earnings Q3 starts this next week with Alcoa.  I am expecting that Q3 earnings will still look strong enough that it'll reverse the market course of the last week as people consider the earnings perspective.

GOOG should post strong earnings, I am guessing - and that will be big.  

My prediction - Q3 earnings season start breaks the bearish trend and drives us up more than 100 points on the S&P index by the time its out.   

 -Rof 

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#29) On October 06, 2011 at 8:56 PM, BillyTG (29.24) wrote:

rofgile, don't get too comfy...There is no way this thing is on the permanent road to recovery. We have a political and economic mess of biblical proportions looming.

David in California, what are your thoughts on home buying right now? Just read an article showing 30-year fixed mortgages dipping under 4%, the lowest ever in decades it said. What worries me is the inevitable future interest rate increases that seem likely to shrink home buying demand and home values. Better to lock in at 4% now or wait until the "double dip" in housing but pay a much higher rate?

http://www.youtube.com/embed/6UGDTtqklSo" frameborder="0" allowfullscreen>

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#30) On October 06, 2011 at 9:56 PM, walt373 (99.86) wrote:

What was the last invention that you know of that boomed the economy like the ipod or iphone?

The internet? lol. How much more important is the internet than the iphone? Maybe like one million times...

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#31) On October 06, 2011 at 10:37 PM, CCharing (91.75) wrote:

I don't think it's minimum wage laws to be honest.  

I see too many fast food, retail stores, etc hiring (help wanted posters galore).

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#32) On October 06, 2011 at 10:56 PM, walt373 (99.86) wrote:

The unemployment is structural and that's why it's slow to recover. A lot of people were employed in industries that were directly or indirectly enjoying the housing bubble. So the majority of those jobs are not coming back.

To complicate the matter are the somewhat ironic but tragic circumstances:

1) The majority of the people employed in those industries, save finance, are less educated and have less savings on average.

2) The money they did save went into houses. Not only did their savings get destroyed when the bubble collapsed, underwater houses are now anchors for them, preventing them from moving.

Less savings and less education makes it harder for these people to move into new careers. Most careers require more education than they have, and that costs a lot of money, which they do not have. Many cannot even move physically to new jobs because of underwater mortgages. I bet if the government funded higher education for the unemployed, it would help a lot.

People working in tech and healthcare are actually seeing a very robust job market. I am actually considering buying DV (Devry) stock because of this theme but again, education costs money and two, still trying to get comfortable with the regulatory environment in the for-profit education space.

 

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#33) On October 06, 2011 at 11:49 PM, whereaminow (< 20) wrote:

Some really great comments guys.  Walt I especially agree with this last one. But it's late so I'll have more to say tomorrow. 

David

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#34) On October 07, 2011 at 12:15 AM, dbjella (< 20) wrote:

Welcome back David!  I didn't enjoy your carpet bombings while you were on your vision quest.  Hopefully, you will blog more now.  I enjoy your blogs they make me think :)

Enjoy CA. 

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#35) On October 07, 2011 at 1:49 AM, StatsGeek (29.33) wrote:

It's a mutual lovefest, David.  I've always appreciated your perspective on things and agree with most of your thinking.

The bet is on.  What is the time frame?  How about 6 months?

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#36) On October 07, 2011 at 1:49 AM, StatsGeek (29.33) wrote:

It's a mutual lovefest, David.  I've always appreciated your perspective on things and agree with most of your thinking.

The bet is on.  What is the time frame?  How about 6 months?

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#37) On October 07, 2011 at 2:13 AM, walt373 (99.86) wrote:

I'm going to have to side with StatsGeek here... this bear's just getting started. Today is May, 1930 if politicians and economists choose the wrong path.

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#38) On October 07, 2011 at 2:26 AM, walt373 (99.86) wrote:

I'm not saying this will happen, but the stage is set. How do you invest in that environment? Dip buyers were lucky if they make it to the third sucker rally, but there were another three more after that...

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#39) On October 07, 2011 at 8:48 AM, Frankydontfailme (27.71) wrote:

Question is Walt, what stage are we on that 1929 graph? I think we're in the silly rally stage? :)

Employment way better than expected for Sept (100,000 jobs added)

but real employment (U6) jumped to 16.5%

Market Rally time....

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#40) On October 07, 2011 at 10:00 AM, whereaminow (< 20) wrote:

Frankydontfailme,

Comment #27 is really good and I don't have much to add. I think it stands on its own.  I do think the rally will last longer than one year, but we get highly subjective at this point.  My main point here is that I don't see a stock market crash in my near future.

walt373,

Unemployment is structural, correct.  For a little while.  If we allow the market to work, people re-train, they take lower pay, they move to markets where demand for labor is higher, etc.   This process has historically lasted 6-18 months, even in the worst crashes.  As I have made a point of stating several times, the severity of the 1920 crash far exceeded both 2008 and 1929, yet because labor markets were allowed to correct, unemployment went from 12% in 1920 to 4% in 1921 (and that includes a reduction in government spending, which coincidentally throws the entire MMT thesis on counter cyclical spending out the window.)

On the other hand, we know that unemployment benefits and minimum wage laws hamper labor markets.  This is a stroke-of-the-pen that could be used to help the poor, but Congress won't touch it because Americans won't touch it.  They allowed the Left to assume a moral high ground it neither earned nor deserved (and the Establishment Right is no better, but this is a Leftist idea.)  These laws hurt people. They are immoral and unjust.  They are evil.  They need to be repealed.

BillyTG,

Yes. The only better time to buy a house will be down the road when interest rates rise.  But then you must be in cash, since you won't want to put 5% down with a 9-12% interest rate.  So for someone doing a 5-10% down payment, I say go ALL IN on a 15 year at 3.3%. (Unless you live in DC. Their market is different.) 

And that's what I'm doing.

dbjella,

Thank you Doug!  You're going to get more of me, for sure, but gimme a chance to adjust to my new job and life.  Then I'll come out firing on many fronts.

StatsGeek,

Saving the best for last, hehe.  Sure, I'll make a very friendly wager.  What are the terms for winning and losing?  Let's say that over the next 6 months if the market doesn't drop below X (9,000 DOW sound fair?) amount, I win.  If it does you win?

David

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#41) On October 07, 2011 at 11:01 AM, StatsGeek (29.33) wrote:

How about below 10,000?  That's a 10% drop from today.  Unlikely from a purely statistical standpoint, so the odds are in your favor.

Stats

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#42) On October 07, 2011 at 12:16 PM, whereaminow (< 20) wrote:

StatsGeek,

Ok. I'll make that bet, although I don't feel very confident about it ;)  If I didn't believe in the unpredictability of markets, what kind of libertarian would I be lol?

David 

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#43) On October 07, 2011 at 6:35 PM, rfaramir (29.31) wrote:

Free banking versus mandatory 100% reserve banking is an interesting argument, but I don't think it's necessary.

If all laws privileging the banks so they can get away with their ripoff of creating multiple claims to the same wealth (especially when it's someone else's wealth) were eliminated, I don't see how they'd get away with any but a very small amount of fractional reserve fraud. A special law isn't necessary. Bank runs on banks that cheat will keep them in line. Banks that let customers audit their gold independently will have more customers than those who, in order to cheat, don't.

And such a law disallowing fractional reserve banking might prevent innovative free market mechanisms that could benefit us all. For example, if some 'notes' were issued with the full knowledge of all that they were only fractionally backed, and the people could see exactly what percent unbacked they were (through electonic auditing or real visits to the bank's vaults), it might serve some honest purpose. So long as they were not pawned off as fully-backed currency, but the recipients knew that they had an X% chance of getting their face value, they might trade at a modest discount on the free market (likely near 100-X%). I don't immediately see how it would be useful, but it might be, so long as no fraud was involved.

More liberty, fewer laws is usually a good answer.

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#44) On October 07, 2011 at 7:18 PM, kdakota630 (29.71) wrote:

whereaminow

I'm a little late to the party (general insanity on this end), but glad to have you back and blogging. Enjoyed this one as well as your contribution on "other David's" blog with cato.

I would feel remiss if I didn't at least acknowledge your return.

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#45) On October 07, 2011 at 8:47 PM, whereaminow (< 20) wrote:

Hi kdak!

Can you email me?

David 

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#46) On October 20, 2011 at 10:09 PM, mtf00l (50.17) wrote:

Welcome back David in CA?  13 days ago?  I hope this isn't it?! ;D

Keep em come'n, keep em come'n...

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